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The Shops and Establishments Act: Benefits And Shortcomings

By - KSANDK on September 14, 2022

Shortcomings & Benefits of Shops and Establishments Act

The Shops and Establishments Act (“Act”) was enacted to monitor and regulate the employment conditions of those working in commercial establishments and comes under labour and employment laws. Since it is a State subject in List II of Schedule 7 of the Indian constitution, the Act and its rules differ according to region. The Department of Labor broadly oversees the Shop and Establishment Act, which governs locations where any trade, business, or profession is practised.

The legislation also regulates the operations of societies, charity trusts, printing facilities, for-profit educational institutions, and locations where banking, insurance, stock, or share brokerage is conducted. The working hours, employee rest periods, opening and closing times, national and religious holidays, overtime work, guidelines for the employment of children, yearly leave, maternity leave, sick leave, and wages are all points governed by this Act.

As mentioned above, the implementation might differ according to each state; however, according to the Act, each state's Shop & Enterprises Act applies to all stores and other commercial establishments. A ‘shop’ is defined as a facility where products are offered for sale, either retail or wholesale, or where clients can get services. A ‘shop’ may also include an office, a storeroom, a godown, a warehouse, a workhouse, or a place of employment.

Shops, business establishments, lodging facilities for travellers, theatres, and other public entertainment venues are all considered establishments. The Act's definition of an establishment may also include additional establishments that the government has specified by the publication of a notification in the official gazette. However, the Factories Act of 1948 governs factories, which are not covered by the Shops & Establishments Act.

What Is a Commercial Establishment?

A commercial establishment is defined under the Shop and Establishments Act as any location where any trade, profession, business, or labour associated with any of these is carried out. These can be:  

  • A society that is SRA 1860-registered  
  • Trusts that are registered or unregistered (charity or non-charity)
  • Publishing houses or allied printing companies  
  • Auditors and contractors  
  • Private institutes of higher learning  
  • Theatres for movies and entertainment  
  • Various industries, including banking, insurance, and stock exchange  
  • Restaurants and cafes  
  • Any further entertainment-related places  

All the establishments above need to register under the Act within 30 days of the commencement of work.   

What Is the Fee for New Registration Under Shops and Establishment Act?

The registration fee for any shop or establishment varies according to the legal framework of the state. There is no national fixed rate of registration. The fee depends on the number of workers in the business or establishment. An employer must submit the accurate number of workers while filling up the registration form and the registration fee will be decided by the labour officer-in-charge.  

Benefits of Registration

  • It offers your place of business a legal identity that establishes your right to work in that particular state.  
  • If you have a small business, you could be eligible for government businesses set up by the Industries of Department and Commerce, or other advantages such as low-interest bank loans, financial aid plans and entrepreneurial programmes designed to encourage commercial activity.  
  • Certification allows you to set up a business bank account in order to manage your finances and taxes.  
  • Inspections and audits by local municipality authorities and other statutory entities such as the Food Safety and Standards Authority of India (FSSAI) will be easier to field if your business is registered under the Act.  

Current Shortcomings of the Act

Automation and digitalization are gradually replacing traditional job processes. Furthermore, the adoption of non-traditional work arrangements has been pushed by information and communication technologies (ICTs) and expanding digital labour platforms. The work-from-home (WFH) trend, has accelerated this process, leading to widescale digital transformation. This has brought a lot of the Act’s applicability into question, as well as other labour-related legislation.   

The Act itself doesn’t elaborate upon the exact definition of ‘establishment’ to make it clear if this would include remote workplaces as well. However, the term ‘establishment’ is also not as widespread as ‘workplace’ under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 (POSH Act), which covers even transportation utilized for work, as a workplace. Though distinct in its purposes, the POSH Act establishes the workplace as a flexible term.

This narrow scope of other legislations, however, makes it a challenge to regulate new-age start-ups that operate entirely as cloud-based systems. For such start-ups, it is evident that the Act and relevant licenses under it are not applicable since their operations do not currently fall under the definition of a ‘commercial establishment’ as defined in the Act.  

We have also expanded on the specific shortcomings the Act entails for e-commerce and associated establishments in a previous article concerning the applicability of the Act in a previous article.

The International Landscape

Current rules in the country, including the Shops and Establishment Act, do not use the word ‘telework’ to describe the type of WFH that has been a trend in India since March 2020. To explain the term, the usage of Information and Communication Technology i.e., ICTs, such as laptops, tablets, and smartphones, to carry out work away from the workplace is known as telework.

One of its first legal mentions may be found in a 1995 California statute that promotes ‘telecommuting’ or the practice of state employees commuting using computers and telecommunications technologies, instead of physically going to an office. A Framework Agreement on Telework outlining a basic framework balancing business and employee interests was also created by the EU in 2002.   

The International Labour Organisation’s (ILO) Convention No. 177 on ‘home work’, which promotes equitable treatment for home workers and other employees, has also recognised teleworking. The Convention's definition of ‘home work’ has included teleworking as a continuous arrangement (whether full-time or part-time) and not alternating with office-based labour. India has not ratified this Convention yet.   

Spain, out of other countries which have tried to regulate remote work, came out with a detailed set of guidelines. The rules state that without violating current collective bargaining agreements or general employment laws, remote labour must be voluntary, changeable, and codified in writing. The legislation makes it clear that it only applies to those who are employed and who have performed ‘remote work’ for at least three months, accounting for at least 30% of their working hours, or an equal amount determined by their contract. Additionally, it differentiates between ‘work from home’ and ‘telework’. Such employees are also entitled to fair payment, privacy, and digital disconnection.   

Wrapping Up

India has an extremely comprehensive set of labour codes, and other policies to protect workers. However, the rules are due for an update considering changing trends and requirements — remote work and e-commerce establishments being a few such examples. There have been numerous instances where the employees have been exploited under ‘remote work’. Considering that many companies are moving online, either fully or partially, the definitions must be changed to protect the sanctity of existing regulations. 

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